Double my cost to get material markup

[mtnelect]

Do you ever actually show a customer the price before the job or tell them what it will be beforehand, or only after if they ask?

I assume you are able to create an invoice drag and drop sort of thing from your price book?

I have learned from past experience, no verbal agreements, now everything is in writing. I always give an Estimate in writing, which is converted to an Invoice when accepted. Anything over $500.00 in California (includes labor & materials) requires a "Home Improvement Contract" and a three-day waiting period., except for emergencies which requires another form called a "Waiver" signed by the customer.

Yes, I create my Estimates & Invoices on QuickBooks, created over years of experience. Also, my "Flat Rate" packages are a firm price, no matter what might change, the customer knows what the price is before and after the work is completed.

 

[OK Sparky 93]

The estimate that you create in QB, is this the one that the customer sees. Are you able to do that on the job? And is it able to be signed electronically?

How long did it take you to create your price book?

 

[mtnelect]

The estimate that you create in QB, is this the one that the customer sees. Are you able to do that on the job? And is it able to be signed electronically?

How long did it take you to create your price book?

I have created a custom three-page Invoice. I charge a "Diagnostic" charge and leave a written estimate with the customer. Also, I have a monthly subscription. with Trade Service Publications condensed "Trade Book" that I carry with me for current updated pricing.

The "Flat Rate" price book took several years to perfect and updated as needed.

 

[OK Sparky 93]

My price to replace an outlet comes out to 29 a piece no gfi.

What did you charge me to get my house? I have had jobs just like this. Take about 15 minutes give or take, and wind having more than an hour tied up in the whole affair.

 

[OK Sparky 93]

I’m glad there aren’t more of you. My markup is double and my service rate is $250 an hour. I don’t see anyway anyone can run a real business at 100 an hour at least in service. I ran it for years at $150 and realized I was barely breaking even.

Bluheels2, I like your way of thinking. To clarify how many hours do you consider to be billable in a given day? Currently if I took labor plus burden @$50 plus materials, I would have to markup 2.5 times to cover everything and maybe it all works out and I have a take home of around $50K.

 

[OK Sparky 93]

What did you charge me to get my house? I have had jobs just like this. Take about 15 minutes give or take, and wind having more than an hour tied up in the whole affair.

Apparently I already asked and you responded.

 

[AC\DC]

Bluheels2, I like your way of thinking. To clarify how many hours do you consider to be billable in a given day? Currently if I took labor plus burden @$50 plus materials, I would have to markup 2.5 times to cover everything and maybe it all works out and I have a take home of around $50K.

I don’t understand how you are 250 and hour, on service work. Your area must be able to support that.
Here it would not be possible
I am 150 and most expensive in town, don’t get me wrong I would like to charge that

 

[letgomywago]

What did you charge me to get my house? I have had jobs just like this. Take about 15 minutes give or take, and wind having more than an hour tied up in the whole affair.

That's after the service charge of $170. The 170 covers the first simple device replacement each additional one is $29 assuming there's afci gfci or anything else already there that needs to be. Each piece of the assembly raises the price. This shows the customer that ya the outlet took some labor and even though the material cost wasn't high the breaker cost alot and had more labor than the outlet. Or the replacement of the box the outlet was in is x amount to replace then the receptacle is replaced.

It makes it obvious to the home owner you're not fiddling around in a panel and then replacing one outlet for 300 bucks or whatever and that there is alot of steps to be able to do that one little job.

 

[OK Sparky 93]

Suppose you only had a 1000 hours billable.

For math purposes you had gross revenue of
$250,000 100%

What do you think the cost on materials would be. 25% $62,500

Hopefully there is a profit and I think it would be planned for. 8,9,10%. Let’s call 10% 25,000

We have 65% left. $162,500

Operating expenditures 30% could be more could be less. But this might be a good range. $75,000

35% or $87500 left

Taxes 15% $37500

What’s left for you to live
20% or $50,000

This is a plan. Where is the labor. Maybe it is 1/2 of your take home. $25,000.

Your P&L should give you numbers for your vehicle cost. Fuel and repair. Las t year I had close to $10,000. With that revenue I would expect it would go up. But it has to be COGs.

COGs 65k plus 25k plus 10k
So it took $100k to produce work. Labor paid and supplies paid maybe.

What did it need to be marked up to get to that $250k. It would have to be marked up 2.5 times.

Everybody’s numbers are going to be different. But more than likely the material cost will remain pretty consistent.

Either way! The question now becomes how you are going to come up with an hourly rate.

And then if for some reason you are having a slow year do you need to raise those rates,
Because you still have to pay the bills and live.

Now that we know that we are covering $250k and if the percentages are accurate. I am sure they are close. We had $62,500 in materials. If we don’t mark up materials, we have $187,500 to cover with labor. Over how many hours? A 1,000. $187.50/hr. Divided by a labor and burden rate of $50, that is a 3.75 mark up in labor.

Like the book Profit First for Contractors
Said the math is the math. And the percentages would change according to the gross revenue. If you had a gross revenue of a million and still paid yourself 20% $200,000 a year.

Seven-Delta-FortyOne said you’ve got to know your numbers.

I’m not doing $250,000 in sales yet. But I know that it takes over $50,000 a year for me to cover my personal expenses and if I want to enjoy things like others, it is probably pushing $65,000. So I have a choice trim the fat if and leave the muscle, but the muscle still cost money so maybe I have to raise the rate.

 

[MiamiValleyelec]

Suppose you only had a 1000 hours billable.

For math purposes you had gross revenue of
$250,000 100%

What do you think the cost on materials would be. 25% $62,500

Hopefully there is a profit and I think it would be planned for. 8,9,10%. Let’s call 10% 25,000

We have 65% left. $162,500

Operating expenditures 30% could be more could be less. But this might be a good range. $75,000

35% or $87500 left

Taxes 15% $37500

What’s left for you to live
20% or $50,000

This is a plan. Where is the labor. Maybe it is 1/2 of your take home. $25,000.

Your P&L should give you numbers for your vehicle cost. Fuel and repair. Las t year I had close to $10,000. With that revenue I would expect it would go up. But it has to be COGs.

COGs 65k plus 25k plus 10k
So it took $100k to produce work. Labor paid and supplies paid maybe.

What did it need to be marked up to get to that $250k. It would have to be marked up 2.5 times.

Everybody’s numbers are going to be different. But more than likely the material cost will remain pretty consistent.

Either way! The question now becomes how you are going to come up with an hourly rate.

And then if for some reason you are having a slow year do you need to raise those rates,
Because you still have to pay the bills and live.

Now that we know that we are covering $250k and if the percentages are accurate. I am sure they are close. We had $62,500 in materials. If we don’t mark up materials, we have $187,500 to cover with labor. Over how many hours? A 1,000. $187.50/hr. Divided by a labor and burden rate of $50, that is a 3.75 mark up in labor.

Like the book Profit First for Contractors
Said the math is the math. And the percentages would change according to the gross revenue. If you had a gross revenue of a million and still paid yourself 20% $200,000 a year.

Seven-Delta-FortyOne said you’ve got to know your numbers.

I’m not doing $250,000 in sales yet. But I know that it takes over $50,000 a year for me to cover my personal expenses and if I want to enjoy things like others, it is probably pushing $65,000. So I have a choice trim the fat if and leave the muscle, but the muscle still cost money so maybe I have to raise the rate.

Are you saying you’re trying to make $65,000 a year?

 

[OK Sparky 93]

Are you saying you’re trying to make $65,000 a year?

Would there be anything wrong with that?

I brought home about $35,000 working for someone else. Would you want to make more?

Do I think I am going to make $65,000 in the near future, maybe not, but why shoot for something equal or less.

 

[jim dungar]

Would there be anything wrong with that?

I brought home about $35,000 working for someone else. Would you want to make more?

Do I think I am going to make $65,000 in the near future, maybe not, but why shoot for something equal or less.

What happened to the $25K profit in your example?
I assume you are the owner of th company so wouldn't you add back the profit to your $50K when determining how you are doing?

 

[OK Sparky 93]

Gross revenue would dictate everything.

Isn’t the idea to sell a job for more than it cost to produce?

Naturally if my sales were $100k I’m only going to bring home $20k.
Six categories

Target percentages
Obviously the first will always be.
Income 100%

The next may change, but this is what it is.
Materials. Mine just happen to be 25%

If you read book, you will see.
I read a precursor book Profit First
Profit 5%
Owners comp 50%
Tax 15%
OPEX 30%
Still searching, don’t believe the numbers are right.

Found the book
Profit First for Contractors.

Profit first10% or close. Baseing on current numbers I should have about 7% But there must be a profit. Even if it is 1% to start.

Owners compensation based on my numbers
About 33%

Tax 13%

OPEX 22%

Prior to this there was no profit. A net profit on the P&L of $69,000 is not was not $69,000

I paid myself $42k and some change. I gave 22,000 to Uncle Sam some from last year.

Those things don’t show up on a P&L
Labor it took to produce the job doesn’t either. So the way I see it whatever I paid myself 1/2 of that was labor to produce the jobs and the other half was what I the business owner made.

Seeing how I didn’t actually keep track of every single minute of the day.

Just do the job get paid and move on.

Different now. Now I track everything at least to the nearest 1/4 hour. And for the most part there is more time spent getting to and from a job and chasing materials, (whether it had to be done at the time, or it was already in your possession it still counts), than there actually is doing the job. Most of the time.

 

[MiamiValleyelec]

Would there be anything wrong with that?

I brought home about $35,000 working for someone else. Would you want to make more?

Do I think I am going to make $65,000 in the near future, maybe not, but why shoot for something equal or less.

Nothing wrong with that, I think your earning potential is greater than that. Not sure where you live but in Ohio you can make that working for someone else. Plus, you’d get pto, 401k, insurance, company vehicle… you would be working more than 1,000 hours a year though

 

[OK Sparky 93]

Nothing wrong with that, I think your earning potential is greater than that. Not sure where you live but in Ohio you can make that working for someone else. Plus, you’d get pto, 401k, insurance, company vehicle… you would be working more than 1,000 hours a year though

Well, my problem was, that I liked the guy I worked for. But I paid for my own box van, and all of my tools. I got some pto after about 12 years. I’d barely seen north of $55,000 though. That was gross. So after 21 years of going through the struggle, all while thinking the work would pick up and be consistent, it never did. Figured this is the industry.

I decided that I’d had enough. I am going to do this on my on surely I can make this much money on my own, working less, or I am going to kill it.

My second problem is that I didn’t have a following, the marketing, and no money, to make it through the slow times.

So, for me the phone will totally have to quit ringing to throw in the towel.

Overcome and adapt, I will!

Now for me to cover everything and pay myself more than $100k the phone is going to have to blow up and I will have to convert every lead into a paying customer, and the numbers for me have to be right.

I’ve heard to many stories about the ones that go through and are funneling large amounts of cash, but are barely surviving personally. Not getting paid. Could pay an employee but not pay themselves.

Spending to much and or not charging enough.

So you trim some fat and if you are still not putting money everywhere then you have to raise your prices, or do more work. I’d rather have freedom. So find the fine line Then fight the head trash.

 

[kwired]

Well, my problem was, that I liked the guy I worked for. But I paid for my own box van, and all of my tools. I got some pto after about 12 years. I’d barely seen north of $55,000 though. That was gross. So after 21 years of going through the struggle, all while thinking the work would pick up and be consistent, it never did. Figured this is the industry.

I decided that I’d had enough. I am going to do this on my on surely I can make this much money on my own, working less, or I am going to kill it.

My second problem is that I didn’t have a following, the marketing, and no money, to make it through the slow times.

So, for me the phone will totally have to quit ringing to throw in the towel.

Overcome and adapt, I will!

Now for me to cover everything and pay myself more than $100k the phone is going to have to blow up and I will have to convert every lead into a paying customer, and the numbers for me have to be right.

I’ve heard to many stories about the ones that go through and are funneling large amounts of cash, but are barely surviving personally. Not getting paid. Could pay an employee but not pay themselves.

Spending to much and or not charging enough.

So you trim some fat and if you are still not putting money everywhere then you have to raise your prices, or do more work. I’d rather have freedom. So find the fine line Then fight the head trash.

If you have to pay for your own vehicle and tools, other than maybe a few personal hand tools, you basically were the equivalent of a subcontractor to this person, they possibly supplied the benefits of the contractor license to be able to legally contract out the jobs and maybe the liability insurance or even workers comp and was probably responsible for sourcing the bulk of materials used but good chance you purchased some items yourself at times or even some expendable items here and there.

I don't know how long ago you are talking but today that van with storage gear maybe is a $100k purchase if it is new.

 

[Seven-Delta-FortyOne]

I personally do not use Materials markups to cover OH&P. I figure that separately.

For me, it’s too variable and can lead to mistakes.

Also, make sure you separate personal expense's from business. Whatever you may wish to make per year, set that aside for the time being, and figure the business as its own entity.

It may be that in a depressed area, perhaps a rural area, it’s not possible to make what one wants to make. It may necessitate expanding into other areas.

How accurate of a number do you have for your OH? Every business has its Achilles heel, and for a construction company, the thing that sinks them more than anything else, is not knowing, or not recovering, OH.

It’s my opinion that it is very difficult, bordering on impossible, for a small construction company to reliably recover OH, trying to base it off percentage of gross sales. And more than likely completely impossible to do so based of materials markup.

 

[Seven-Delta-FortyOne]

Sometimes getting caught up in percentages can be counterproductive.

If you want to make $65k/year, and you know from experience that you only get 1,000 billable hours/year, divide that number.

So you need $65/hour for you.

If OH is $50k/year, (this is business OH only), then you need to add on another $50/hour. You’re now at $115.

You can even add 8% profit as a solid number. If you know that you’re doing around $200k in gross, 8% of $200k is $16k.

Divide that by 1,000, (your billable hours for the year), that’s another $16/hour.

You’re at $131/hour.

Forget about materials markup. It’ll be icing on the cake. It’ll cover materials that get damaged bouncing around in your truck, that fact that you must have capital resources tied up in inventory, extra trips to the supply house, incidentals that you didn’t charge for, like 18” of Super 33, and on and on.

But now you have everything accounted for in your hourly rate. Then you can add trip charges for anything out side, say 25 miles of your base, you can add first hour rates to cover fuel, you can add additional charges for certain high dollar tools, I know some guys who have a separate charge for any tools that cost over $500 or $1,000, or whatever amount you’re comfortable with.

Some of the business books, while the information in them is spot on, in my opinion they can sometimes be overly complicated for a small one man shop.

If you’re a K&B remodeling company with 4 separate crews, each with a site super, the owner who doesn’t work in the field, an outside sales man, an Production Manager overseeing all the Supers, and 3 office staff, yes, it’s complicated figuring what is is OH, what is Direct Job Costs, and coming up with percentages so the salesman can price the job.

But honestly that’s all bull$)(t for a small shop. Get some solid numbers, divide by time you’ll spend working in the year, and there’s your rate.

 

[OK Sparky 93]

I appreciate all of the info. I know there are lot there that have been there and done that.

Its invaluable. I went from working out of a box van to working out of my personal pickup because some kid while parked ran into it and they totaled it.

It has been a hindrance. And since I never had a legitimate operating budget. It has become an eye opener and the trash in my head is sometimes very loud.

When I think about the cost to replace that truck, I cannot fathom $100,000.

I sure didn’t have it budgeted for.

And what is right? If I have to borrow money to replace that truck, to be able to efficiently provide a quality and profitable service, the question for me is how to determine an appropriate annual amount for that said truck that could be anywhere from a high mileage replacement that seems affordable in the slow time or a newer model with less miles.

$10k a year $20k, or is it less.

I believe there are probably expenses that larger firms may have whether they are needed or not for the business to function,

That I as a smaller entity don’t need to focus on.

However I need to be real.
What OH expenses do you think or know that are needed to successfully run a company?

And what should a one man or small operation set as a budget for such expenses?

 

[ptonsparky]

It's hard when you've not been in business long to work from experience. You need a truck. Pick one and determine the payments. Insurance, auto, business and health if desired. Rent, even if it's a room in your house. All auto expenses. Etc. Etc. Use that as a base and cover it. Paid the truck off? Keep that expense in the guestimate. You will need a another. Self employment taxes for me was about 30%. Pay yourself $1000, and figure another $300 at the end of year. Pay quarterly or monthly. However the account has suggested.